Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

Likely ETF Winners and Losers from Trump Policies

President Trump’s first speech to Congress was a triumphant one with the Dow Jones Industrial Average steering past the 21,000 bar and most other corners of the investing world swinging in optimism. Hopes of solid fiscal reflation and deregulation actually fueled an already fired up rally on Wednesday.

Though markets gave up most of their gains the next day on rising rate concerns and profit booking, the underlying sentiments are still bullish. That said, even in this spell of optimism, some parts of the investing world are likely to be in the red in the Trump era.

Below we highlight those ETF areas that could gain or lose on Trump’s promised policies.

Winners

Financials

Trump’s promise of deregulation in the financial sector and increasing chances of Fed rate hike this month took financial stocks to new highs. Benchmark Treasury bond yields jumped 10 bps to 2.46% on March 1, 2017 from the previous day. This rising rate environment would make a great situation for financial stocks as these boost net interest margin. The largest financial ETF Financial Select Sector SPDR (XLF - Free Report) – with a Zacks ETF Rank #1 (Strong Buy) – added about 2.85% on March 1, though it shed 1.55% the very next day (read: Will Trump & Fed Make 2017 a Year of Financials ETFs?).

Defense

President Trump intends to boost military spending by about 10% to $54 billion in the U.S. in fiscal 2018 starting from October 1, 2017. This makes defense ETFs like SPDR S&P Aerospace & Defense ETF (XAR - Free Report) (up 1.3% on March 1) and PowerShares Aerospace & Defense Portfolio (PPA) (up 1.5% on March 1)winners.However, the funds retreated the very next day probably due to profit booking.Both funds have a Zacks ETF Rank #1.

Losers

Muni Bonds

The allure of municipal bonds generally lies in the fact that they make an excellent choice for investors seeking a steady stream of tax free income. Usually, the interest income from munis is exempt from federal tax and may also not be taxable per state laws, making them especially attractive for investors in the high tax bracket, looking to reduce their tax liability.

However, with the President-elect planning to slash individual income-tax rates massively, the $3.7 trillion municipal market is bound to suffer as investors’ incentive from these tax-exempt bonds fall. Also, with the Fed planning to raise interest rates faster this year, the appeal of muni bonds – relatively higher current income than treasuries – is likely to be marred.

As a result, muni bond ETFs are out of favor now though most of the other corners of the market have been in a rallying mode. Funds like SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB - Free Report) and VanEckVectors High-Yield Municipal ETF (HYD - Free Report) have a Zacks ETF Rank #5 (Strong Sell) each. These funds were in the red on March 1 (read: What Lies Ahead for Muni Bond ETFs in the Trump Era?).

Alternative Energy

Trump promised to enhance military spending at the cost of lower targeted expenditure at programs like the Environmental Protection Act. The President in fact favors the fossil-fuel based businesses of coal, oil and gas and has expressed skepticism about global climate change in his campaign. This should hurt clean energy ETFs like Guggenheim Solar ETF (TAN - Free Report) (down 0.6% on March 1). It has a Zacks Rank #5 (read: Trump's Victory Casts a Shadow Over Solar ETFs).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Resources

Client Support

Follow Us

Zacks Moblie App

Zacks Research is Reported On:

Yahoo

MSN

Marketwatch

Nasdaq

Forbes

Investors.com

Morningstar

Copyright 2018 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +25% per year. These returns cover a period from 1988-2017. Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month. A simple, equally-weighted average return of all Zacks Rank stocks is calculated to determine the monthly return. The monthly returns are then compounded to arrive at the annual return. Only Zacks Rank stocks included in Zacks hypothetical portfolios at the beginning of each month are included in the return calculations. Zack Ranks stocks can, and often do, change throughout the month. Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations.

Visit performance for information about the performance numbers displayed above.